Accounting Theory
Test Bank
Course Introduction
Accounting Theory explores the foundational concepts, principles, and frameworks that underpin accounting practice and policy. This course examines the evolution of accounting thought, the development and application of accounting standards, and the broader social, economic, and ethical implications of accounting decisions. Students analyze the role of regulatory bodies, investigate accounting controversies, and evaluate differing theoretical perspectives, such as positive versus normative accounting theory. By understanding the rationale behind various accounting methods and their impact on financial reporting, students are equipped to critically assess existing practices and adapt to emerging trends in the discipline.
Recommended Textbook
Modern Advanced Accounting in Canada 6th Edition by Murray Hilton
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12 Chapters
691 Verified Questions
691 Flashcards
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Page 2
Chapter 1: A Survey of International Accounting
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Sample Questions
Q1) The SEC made a monumental decision to change the requirements for foreign registrants and their reporting in the US under certain circumstances in 2007:
A)Foreign registrants could use IFRSs in preparing their financial statements
B)Foreign registrants must report under US GAAAP.
C)Foreign registrants may report under IFRS as long as they provide a reconciliation to US GAAP.
D)The SEC has no jurisdiction under foreign registrants..
Answer: A
Q2) The European Union has attempted to harmonize accounting principles amongst its member nations by issuing:
A)statutes.
B)standards.
C)bylaws.
D)directives.
Answer: D
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Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) What is the amount of Goodwill arising from ABC's acquisition of DEF?
A)($100,000)
B)$ 28,000
C)$ 80,000
D)$100,000
Answer: B
Q2) Assuming that X's Investment in Y qualifies as a portfolio investment,what journal entry should be made at the end of the year?
Answer: No journal entry is required
Q3) Which of the following types of share investment does not qualify as a strategic investment?
A)Significant influence investments.
B)Joint Control investments.
C)Held for Trading.
D)Control investments.
Answer: C
Q4) Prepare X's journal entries for 2002 and 2003,assuming that this is a Portfolio Investment.
Answer: 11ea8eda_c611_a09a_9698_8df93e35ac5e_TB4094_00_TB4094_00
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Chapter 3: Business Combinations
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Sample Questions
Q1) Company Y purchases a controlling interest in Company Z on January 1,2002.Which of the following would appear as the Shareholder Equity amount on Company Y's Consolidated Balance Sheet on the date of acquisition?
A)Company Y's Shareholder Equity
B)The sum of the Shareholder Equity of both companies.
C)Company Y's Shareholder Equity as well as Company Y's proportional share of company Z's net assets at book value.
D)Company Y's Shareholder Equity as well as Company Y's proportional share of company Z's net assets at Fair Market Value.
Answer: A
Q2) During an acquisition,when should intangible assets NOT be recognized apart from Goodwill?
A)The assets have been identified but not accounted for by the subsidiary.
B)The assets have been identified and accounted for by the subsidiary.
C)The assets can be sold,licensed or exchanged)
D)The assets have been accounted for by the subsidiary but have no Fair Value on the date of acquisition.
Answer: D
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Page 5
Chapter 4: Consolidated Statements on Date of Acquisition
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Sample Questions
Q1) Under the Proprietary theory,Non-Controlling Interest is
A)non-existent.Goodwill is established based on the Parent's pro-rata share of any acquisition differential.
B)non-existent.Goodwill is established based on the Parent's acquisition cost.
C)based on the fair market values of the subsidiary's net assets.Goodwill is established based on the Parent's acquisition cost.
D)based on the book values of the subsidiary's net assets.Goodwill is established based on the Parent's acquisition cost.
Q2) Prepare Jean Inc's consolidated Balance Sheet on the date of acquisition using the Proprietary Theory.
Q3) A negative acquisition differential
A)is always equal to negative goodwill.
B)is equal to negative goodwill when the fair values of the subsidiary's identifiable net assets are equal to their book values.
C)implies that the parent company may have overpaid for its acquisition.
D)cannot occur under the acquisition method)
Q4) Discuss the disclosure requirements for long term investments including accounting policies and NCI.
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Sample Questions
Q1) A Company sells inventory to its Subsidiary,B Company at a mark-up of 20% on cost.Of what significance is this transaction,should A wish to prepare Consolidated Financial Statements? The inventory is still in B's warehouse at year end)
A)This is not significant.Any inter-company profits are eliminated during the Consolidation process.
B)A's net income will be under-stated)
C)B's income will be over-stated)
D)There will be unrealized profits in inventory which will only be realized once B sells this inventory to outsiders.
Q2) The amount of depreciation expense appearing on Big Guy's July 1,2004 Consolidated Income Statement would be:
A)$115,000.
B)$116,280.
C)$113,720.
D)$113,400.
Q3) Prepare Brand X's Consolidated Balance Sheet as at December 31,2001,assuming that Brand X purchased 80% of Brand Y for $350,000.Assume the Entity Method is applied)
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Chapter 6: Intercompany Inventory and Land Profits
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Sample Questions
Q1) Calculate the non-controlling interest (Balance Sheet)as at December 31,2009.
Q2) What would be the balance in the investment in MARS account at December 31,2008?
A)$318,000.
B)$330,000.
C)$358,300.
D)$400,000.
Q3) Assuming that X Inc.used the equity method,what adjustment would have to be made to the investment in Y account to adjust for any unrealized profits on Y's sales to X?
A)No adjustment would be required.
B)The account would have to be reduced by $400.
C)The account would have to be reduced by $160.
D)The account would have to be reduced by $200.
Q4) What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for trademarks?
A)$200,000.
B)$245,000.
C)$240,000.
D)$236,000.
Q5) Compute MAX's Consolidated Net Income for 2009.
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Chapter 7: Aintercompany Profits in Depreciable Assets
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Sample Questions
Q1) What is the amount of unamortized acquisition differential on December 31,2010?
A)$26,000
B)$16,000
C)$8,000
D)$4,000
Q2) The amount of depreciation expense appearing on Jay's 2010 Consolidated Income Statement would be:
A)$15,000
B)$35,000
C)$34,850
D)$34,880
Q3) Ignoring taxes,what is the total amount of pre-tax profit from intercompany inventory sales that was realized during 2009?
A)$10,000
B)$2,000
C)$5,000
D)$7,000
Q4) Prepare a Statement of Non-Controlling Interest for the year ended December 31,2009 for Plax Inc.
Q5) Compute the goodwill on the acquisition date.
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Chapter 8: Consolidated Cash Flows and Ownership Issues
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Sample Questions
Q1) Compute the Consolidated Cost of Goods Sold for 2009.
Q2) Approximately what percentage of the non-controlling interest was due to D's own earnings?
A)19%
B)45%
C)30%
D)5%
Q3) A Inc.owns 80% of B's outstanding voting shares.Under which of the following scenarios would A's ownership percentage of B change?
A)B Inc.announces a 2-for-1 stock split to all its common shareholders.
B)B issues an additional 10,000 voting shares.A acquires 8,000 shares of the new issue.
C)B issues an additional 10,000 voting shares.A acquires 6,400 shares of the new issue.
D)B retires 20,000 voting share,and in doing so,buy back 16,000 shares from B.
Q4) What percentage of Marvin's shares was purchased by Hanson on January 1,2009?
A)60%
B)10%
C)70%
D)90%
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Page 10
Chapter 9: Other Consolidated Reporting Issues
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Sample Questions
Q1) Under the Balance Sheet approach,the differences between the carrying values of assets or liabilities and their tax bases are treated as:
A)equity reductions.
B)timing differences.
C)permanent differences.
D)temporary differences.
Q2) Assume that the facts provided above with respect to the Jinxtor Joint Venture remain unchanged except that John receives $200,000 in return for investing its plant and equipment.What would be the recognizable gain on December 31,2010 arising from Jinxtor's investment?
A)$15,000
B)$27,000
C)$50,000
D)$14,000
Q3) What is the amount of Consolidated Retained Earnings for 2010?
A)$340,000
B)$368,000
C)$376,000
D)$558,000
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Chapter 10: Foreign Currency Transactions
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Sample Questions
Q1) What is the amount of interest paid (in Canadian Dollars)during 2010?
A)$250,000
B)$372,500
C)$287,330
D)$287,250
Q2) The rate charged by commercial banks for the purchase of any foreign currency (in Canadian dollars)on any given day would be based on which of the following?
A)The Foreign currency hedge.
B)The forward contract.
C)The spot rate.
D)The forward exchange contract.
Q3) What was the amount paid to RNB by CDN at the settlement date?
The one-transaction method was dropped according to an earlier version of the text around 2005.
A)$820 U.S.
B)$820 CDN.
C)$810 CDN.
D)$805 CDN.
Q4) Compute the carrying value of the investment at the end of each year:
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Chapter 11: Translation and Consolidation of the Financial
Statements of Foreign Operations
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Sample Questions
Q1) Which of the following statements is correct?
A)If an organization is self-sustaining,depreciation and amortization must be translated using closing rates.
B)If an organization is self-sustaining,depreciation and amortization must be translated using average rates.
C)If an organization is self-sustaining,depreciation and amortization must be translated using historical rates.
D)If an organization is considered an integrated foreign subsidiary depreciation and amortization must be translated using closing rates.
Q2) Which of the following rates would be used to translate the company's bond interest expense for the year?
A)$1CDN=$0.815 U.S.
B)$1CDN=$0.8175 U.S.
C)$1CDN=$0.8250 U.S.
D)$1CDN=$0.83 U.S.
Q3) Translate Martin's 2011 Income Statement into Canadian dollars.
Q4) Compute Wilsen's exchange gain or loss for 2014.
Q5) Compute Martin's exchange gain or loss for 2011.
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Chapter 12: Accounting for Not-For-Profit Organizations and Governments
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Sample Questions
Q1) A not-for-profit organization is required to record the donation of capital assets at:
A)Replacement Cost.
B)Fair Value.
C)Net Realizable Value.
D)the donor's cost.
Q2) Describe what fund accounting is and why is it used for not-for-profit organizations.
Q3) Prepare journal entries for these transactions,using the deferred contribution method,assuming that the assets were purchased using restricted funds in the amount of $11,000.
Q4) The maximum amortization period specified by Section 4430 with respect to capital assets is:
A)5 years.
B)10 years.
C)20 years.
D)No maximum amortization period is specified.
Q5) Assuming that the assets were purchased from a restricted fund contribution in the amount of $11,000,prepare the required journal entries for 2014,indicating the fund or funds to be used.
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